The US economy shrank for the second quarter in a row, a milestone that would be called an economic recession in many other countries. That is not the case in the United States, where the decision is made using additional data.
However, the contraction, at an annual rate of 0.9 percent in the three months to July, has gained considerable notice as economic concerns rise. Prices for groceries, gasoline, and other necessities are rising at their quickest rate since 1981.
Fears of a recession are growing as the US central bank hikes borrowing prices swiftly to attempt to calm the economy and reduce pricing pressures, if one has not already begun.
US President Joe Biden has attempted to argue that the economy is still healthy in the face of declining public confidence by pointing out that the unemployment rate is still a low 3.6 percent and hiring has remained steady.
He assured reporters this week that the economy “was not going to be in a recession” prior to the release of data from the Commerce Department. His adversaries in the Republican party then claimed that the White House was attempting to redefine the term.
The US economy contracted at an annual rate of 1.6 percent in the first three months of the year. At the time, experts ascribed anomalies in trade data as the cause of the GDP fall. However, the report released on Thursday revealed a more pronounced slowdown, with growth being constrained by falls in the housing market, business investment, and government spending. Consumer expenditure increased at a slower annual pace of 1% as people increased their spending on healthcare, lodging, and dining out while decreasing their spending on products and groceries.
Professor Jeffrey Frankel of Harvard previously served on the committee of the National Bureau of Economic Research, a group of academics tasked with officially announcing a recession. Noting the robust job growth, he asserted that he did not believe a recession began at the beginning of the year. But after that, he lacked as much assurance.
He replied, “I’m not claiming that everything is great; things have already slowed down. The likelihood of a recession in the future is much larger than it would be in a hypothetical year. The rate of price growth in the US reached 9.1 percent in June, which was the fastest in more than 40 years.
The US central bank responded to the issue on Wednesday by raising its benchmark interest rate by another unusually hefty 0.75 percentage point, marking the second hike since it began raising rates in March.
The Federal Reserve hopes to reduce spending on items like homes and vehicles by raising borrowing costs, which should theoretically relieve some of the pressures driving up prices. But a decrease in demand also indicates a drop in economic activity.
Consumer confidence is declining, the housing market is slowing, and business activity is contracting for the first time since 2020, according to recent reports. Since the year’s beginning, the US stock market has declined, and businesses ranging from General Motors to Facebook and Instagram owner Meta have announced they will slow recruiting. Other businesses, particularly in the real estate industry, have declared layoffs.